Compression 101: How a Humble Efficiency Tool Became a Major Factor in SEF Trading(2)

Published September 30, 2014

Compression has become a topic du jour for the financial technology trade press. Wall Street & Technology recently reported that compression-style trades have “skyrocketed,” while GlobalCapital inked a headline citing “compression usage spikes,” and Markets Media reported that “swap compressions hit $500 trillion.” Clearly, there’s a trend here.

But what is compression, really? Until recently, this relatively benign method of back-office number-crunching was an efficiency tool that market participants would use to reduce the number of trades that were sitting on their books at the clearinghouse. As the clearing mandate under the Dodd- Frank Act has taken effect, compression is becoming an important part of derivatives trading on Swap Execution Facilities (SEFs).

Despite its newfound popularity, many people still wrestle with the definition of compression and its cousin compaction. To help get a handle on the basics, Tradeweb Markets developed a Q&A to explain the tool that is becoming more and more a part of the derivatives trading process.  To access the full article, click here.